While it’s not a tax in the typical “income tax” way, another important tax concept for business owners to understand is *drum roll* SALES TAX. Sales Tax can be a very confusing tax concept for business owners to grasp because there’s a lot of different components to understand!.
Separate Bank Account
First and foremost, it’s really important for business owners to understand, the money you collect under the sales tax umbrella is not yours is to spend! Because business owners just get that one payment from their customer, it often gets deposited into one account. Business owners have a tendency of spending the sales tax they have collected. However, this is being collected on behalf of our governments – both on the provincial and federal levels. The government bodies will want their money, and charge interest and penalties for late payment! I always recommend to my clients to open up a separate bank account and transfer sales tax collected at least once a month into this account.
Each Province is Different!
The other confusing part of a sales tax is that each province has its own rate to charge customers. Some provinces have GST, PST while others are harmonized into HST. What is subject to sales tax also differs from province to province. For a business owner doing business across the country sales tax can be very complicated and very confusing.
1. You need to register with each province you are doing business with.
2. You need to track sales, and sales tax, by province.
3. You need to remit each province’s sales tax to them in a separate provincial filing.
When dealing with cross problems sales tax, you follow the sales tax process for the province where your goods and services are ultimately being delivered.
When your overall sales are more than $30,000, you are required to start charging sales tax on your services or products. However, you can choose to start charging sales tax before you make this magical number. While yes this means you’ll have one more CRA compliance to deal with, there are three main reasons I suggest this:
- If you are truly in this business to succeed you’re going to look at that $30,000 mark at some point. You might as well implement the systems from day one.
- Customers get us to your price as including sales tax from day one. There are no perceived price hike ones you hit the #30,000 to mark.
- By not charging HST, you’re advertising to the world that “Hey, I’m new(er) in business and not making $30,000 yet!”.
Sales tax is one of those “ugh!” just deal with it aspects of running a business. If this isn’t your side hustle, it just makes sense to start your business systems from day 1 properly.